With extreme volatility back in the market, it’s easy to lose sight of the fundamentals.

Of course, in the case of Canada, those fundamentals were already challenged by a weak economy hit by a massive oil shock.

Nevertheless, some Canadian sectors saw a sharp rebound in the second quarter. According to Statistics Canada (StatCan), operating profits at Canadian corporations jumped 12.9%, to CAD80.9 billion, from the previous quarter.

Eleven out of 22 industries saw increases, but financials were responsible for more than 90% of the quarter-over-quarter rise. The sector’s operating profits surged by CAD8.5 billion, or nearly 50%, to CAD25.6 billion.

StatCan primarily attributes the financial sector’s performance to a large decrease in the value of actuarial liabilities among insurers, which led to a huge drop in expenses.

Outside the financial sector, operating profits grew at a comparatively sluggish 1.5%, to CAD55.3 billion.

However, it’s important to note that these results came after two consecutive quarters of declines. That means companies are still picking up the pieces.

But even the beleaguered energy sector saw its fortunes improve, albeit from a very bad situation to a less bad situation: Operating losses shrank to CAD379 million from CAD1.2 billion in the first quarter. Still, a big part of that result was due to a crude rally that has since sharply reversed.

Importantly, the manufacturing sector had broad-based gains, with 10 out of 13 constituent industries reporting increases in operating profits. The sector’s overall operating profits climbed 6.5%, to CAD13.2 billion.

The manufacturing sector figures prominently on the Bank of Canada’s economic wish list. The central bank has been hoping to see a rise in manufactured exports boost growth in the industry and flow through the economy as a whole. But progress on this front has been halting, at best.

Despite the return to growth, second-quarter operating profits were still 3.8% lower than a year ago overall and 12.6% lower among non-financials.

StatCan’s data is based on a survey of both public and private corporations. Among Canada’s publicly traded companies, the situation is better in some noteworthy ways and worse in others.

With earnings season almost over, nearly all of the 247 firms listed on Canada’s benchmark S&P/TSX Composite Index have reported their second-quarter results.

Given that commodities-oriented sectors such as energy and basic materials account for nearly a third of the index, their results weighed heavily on the broad market’s financial performance, which saw earnings drop almost 20% year over year on a 13% decline in sales.

But there’s hardly the sea of red that one might expect at the sector level. Six out of 10 sectors saw significant earnings growth, while five out of 10 sectors saw respectable, if mostly modest, sales growth.

Among the income-oriented sectors, utilities enjoyed a characteristically steady rise in revenue of 2.8%. And while Bloomberg shows the sector’s earnings skyrocketed by 88.5%, it should be noted that there are only a dozen names in this category, so it’s easy for a couple of companies to distort the average.

Nevertheless, we’re pleased that Dividend Champions holding Fortis Inc. (TSX: FTS, OTC: FRTSF) was one of the companies that helped drive this distortion. As we reported in a previous update, the gas and electric utility saw a 47% increase in earnings per share for the second quarter.

And Fortis boosted its quarterly dividend by 6.25%, with further dividend growth of 6% per year forecast for the next few years. With a current yield of 3.6%, Fortis is a buy below USD29/CAD38.

Meanwhile, Canada’s telecom sector, which we like to think of as our favorite oligopoly, appears to have successfully navigated the mass expiration of customer contracts that occurred during this period.

The sector enjoyed growth in earnings of 8.3% on a 3.8% increase in revenue. Once again, two of our favorite Dividend Champions led the way.

BCE Inc. (TSX: BCE, NYSE: BCE) got a 12.2% boost in earnings on a 2% gain in revenue, while Telus Corp. (TSX: T, NYSE: TU) had steady earnings growth of 4.8% on a 5.1% increase in earnings.

With a current yield of 4.9%, BCE is a buy below USD46/CAD60. Telus yields 3.9% and is a buy below USD36/CAD47.

Although the near- to medium-term outlook has gotten increasingly murky on the global macroeconomic front, we’re calmly collecting our quarterly paychecks from these dependable dividend payers.

The Dividend Champions: Portfolio Update

By Deon Vernooy

Unless you were hiding away on an exotic island with no television or Internet access over the past week, you’re acutely aware of the painful declines in global equity markets. Not even our rather conservative Dividend Champions Portfolio was spared during the panic-fueled selloff, although it held up much better than its benchmark.

Another positive that we can gather from the brutal decline in stock prices is that some of the more expensive stocks that we previously excluded from the Dividend Champions Portfolio now look far more reasonably priced. We plan to introduce at least one new top-quality Dividend Champion in the September issue of Canadian Edge.

With most of the other major earnings reports now out of the way, the Banks are getting their turn.

Royal Bank of Canada (TSX: RY, NYSE: RY), a current holding in our Dividend Champions Portfolio, reported a 2.5% increase in third-quarter earnings per share compared to last year. The dividend was also increased by 5.3%.

The personal and commercial division, responsible for 52% of profits, increased net income by 9% over last year, with the Canadian section up 5%. The segment saw solid Canadian loan and deposit growth, higher net interest margins and a 10% jump in fee income.

The capital markets division, which has a more variable profit profile, could not match last year’s highly profitable comparable quarter: Profits fell 15%. The investment banking unit fared relatively well, with an increase in revenues, but the global markets/trading section reported much lower profits than last year.

The Treasury and investor services division posted excellent results, while the wealth management unit’s profit was unchanged.

Provisions for credit losses were lower, at 0.23% of average loans, although an increase in impaired loans to oil and gas exploration companies was noted in the results announcement.

Loans to oil and gas companies make up a manageable 1.6% of the total loan book, while mortgage loans extended to customers in oil-dependent Alberta make up 15% of the Canadian residential mortgage loan book.

The forward Royal Bank price-to-earnings ratio based on consensus earnings is now 10.5. The stock is not without risk but the valuation is very reasonable for a high-quality business. With a current yield of 4.6%, Royal Bank of Canada is a buy below USD63/CAD83.

Bank of Montreal (TSX: BMO, NYSE: BMO) is not currently a member of the Dividend Champions Portfolio, but it is on our Dividend Champions Watch List.

Earnings per share grew 8% year over year, while the dividend per share was increased by 5%.

Of the various divisions, the U.S. personal and commercial business increased its profits by 38%, driven by the stronger U.S. dollar and lower provisions for credit losses. At the same time, the bank also noted an increase in impaired loans resulting from lending to U.S. oil and gas exploration companies.

The Canadian personal and commercial business, which is the main profit contributor, grew profits by 6% from a year ago. Key factors were an increase in loans, a slightly higher net interest margin and lower provisions for credit losses.

Bank of Montreal’s valuation is rather attractive, with a 2015 estimated price-to-earnings ratio of 10. The stock currently yields 4.9%.